Taxation

UNIT CODE: TAX305 UNIT NAME: TAXATION

Assignment Information Semester 2 2016

Assessment 30% Submission Requirements. This assignment may be submitted at or before 11.59pm (CST) Monday, 3 October 2016, Study Week 11 Assignments are to be submitted by one of the following means; DO NOT LODGE BY FAX nor EMAIL nor at LECTURER'S OFFICE KEEP A COPY

· The assignment must be lodged on or before the due date indicated in the assignment details.

· Submit your Assignment as one document, using word or PDF format1 .

· The assignment must conform to the requirements set out in this assignment

· The assignment must be lodged online via the TAX305 Learnline Assignment Lodgement link on the TAX305

Learnline site.

· Ensure your file is named using a file naming convention that allows the lecturer to identify to whom it belongs. Failure

to use an acceptable file naming convention may result in your assignment lodgement being rejected.

· DO NOT LODGE VIA EMAIL or FAX - assignments lodged by email or fax will not be accepted.

KEEP A COPY - Ensure you have a copy of the assignment lodged.

Assignment lodgements will be acknowledged by the lecturer on the CDU TAX305 Learnline site within 72 hours of

receipt. It is the students responsibility to ensure that the lecturer has received (and acknowledged receiving) the

assignment.

Coversheet Coversheets are no longer required. Students will now be required to affirm at the point of submission that the work they are submitting is their original work. This is built into the submission point. The submission text reads as follows: By clicking the SUBMIT button I certify that this assignment is my own work, based on my own personal study and research, and that I have acknowledged all material and sources in the preparation of this assignment, whether they be books, articles reports, lecture notes, images, videos, any other kind of document or personal communication. I also certify that this assignment has not previously been submitted for assessment in any other course or at any other time in the same course (except as a DRAFT submission) and that I have not copied in part or whole or otherwise plagiarised the work of other students and/or persons. I have read Charles Darwin University's Academic and Scientific Misconduct Policy (pol-001) and Student Breach of Academic Integrity Procedures http://www.cdu.edu.au/governance/procedures/pro-092.pdf and understand its implications.

1 Instructions for creating PDF documents and/or combining documents of different formats are provided on the Learnline site.

School of Business Semester 2, 2016 Page 1 of 5 Faculty of Law, Education, Business and Arts Higher Education, Internal & External

Format The assignment may be completed manually, or with the use of an electronic spreadsheet, word processing software or with the use of accounting software. Marks may be deducted for illegible or partially illegible papers. If completed using multiple file formats or manually, the document must be combined into one document, in PDF format 2. Resubmission As a general rule resubmission of assessment items is NOT possible, however the Lecturer may ask for resubmission if it is deemed appropriate. Details for such resubmission will be made available by the Lecturer if and when the situation occurs. Oral Test or Viva Voce Lecturers may, at their discretion, ask students to verbally present their assignment submissions or rewrite some selected part/s of their answer in a controlled setting. Lecturers may exercise this discretion where they feel that the assignment was not the student’s own work. University Plagiarism policy Plagiarism is the unacknowledged use of material written or produced by others or a rework of your own material. All sources of information and ideas used in assignments must be referenced. This applies whether the information is from a book, journal article, the internet, or a previous essay you wrote or the assignment of a friend. Plagiarism policy is available at: http://www.cdu.edu.au/governance/policies/pol-001.pdf and Student Breach of Academic Integrity Procedures http://www.cdu.edu.au/governance/procedures/pro-092.pdf Extensions and Late Lodgements LATE ASSIGNMENTS WILL GENERALLY NOT BE ACCEPTED UNLESS AN EXTENSION TO THE DUE DATE HAS BEEN GRANTED BY THE HEAD OF SCHOOL. Exceptions will only be made where assignments are late due to special circumstances that are supported by documentary evidence, and may be subject to a penalty of 5% of assignment marks per day. Partially completed assignments will be accepted with appropriate loss of marks for the incomplete portion. Should students foresee potential difficulties with submission of assessment items, they should contact the lecturer immediately the difficulties come to notice, to discuss suitable arrangements etc for the submission of those assessment times. An Application for Assignment Extension or Special Consideration should be completed and provided to the Head of School, School of Law and Business. This application form, explanation and instructions is available on the TAX305 CDU Learnline course site or direct from http://learnline.cdu.edu.au/units/lb_school_templates/deployed/assignment_extension.docx Please note that it is now Faculty policy that all extension requests must be approved by the Head of School. The lecturer is no longer able to personally approve extension requests. Leaving a request for an extension, special assessment or special consideration until the last moment, based on grounds that students could have reasonably been able to foresee, may result in the application being rejected. Ensure that you maintain suitable backup copies of your assignment during preparation, before completion and after lodgement. Loss of data/assignment due to failure to maintain a suitable backup will not constitute grounds for an extension.

2 Instructions for creating PDF documents and/or combining documents of different formats are provided on the Learnline site.

School of Business Semester 2, 2016 Page 2 of 5 Faculty of Law, Education, Business and Arts Higher Education, Internal & External

Assignment Details QUESTION ONE Your client, David Smith runs a small IT consulting business specialising in computer software and technology for the retail sector in Melbourne. The business is structured as a discretionary trust with his company, IT Consulting International Pty Ltd as the trustee of the ‘Smith Family Trust’. David Smith and his wife Jane are the two Directors of the trustee company. The trust not only has an ABN, TFN but is also registered for GST. All amounts shown are exclusive of GST. Receipts $ 467,000 Consulting income 17,000 Rental income from an income producing investment apartment 1,000 Interest on Bank deposits. 32,000 Fully franked dividend from BHP 58,000 Capital gain on Commonwealth Bank shares purchased in 2001 and sold May 2016 Payments $ 5,000 Body Corporate fees on income producing property 15,000 Interest on money borrowed to purchase the income producing investment apartment 5,500 Legal expenses relating to a new loan to acquire the investment apartment. 1,100 Fees paid to a registered Tax Agent in May 2016 7,700 New computer with an estimated life of 4 years 3,300 New photocopier with an estimated life of 3 years 1,000 Travel to and from work 60,000 Other operating expenses including David’s salary of $45,000 65,000 New motor vehicle for the trust and used solely for business purposes. Effective life 5 years Additional Information (a) The Trust has a carry forward tax loss from an earlier income year of $10,000. (b) The Trust is not using the Small Business Entity Tax System (SBE) (c) The investment apartment was purchased new, and is part of a hotel complex. The apartment was purchased on 1 July 2015. The real estate agent provided the trust with a certificate from a quantity surveyor stating that the construction cost of the apartment was $267,000 and that the depreciation on the chattels in the apartment was $15,600 for the financial year. (d) As at 30 June 2015 the trust had no depreciating assets. On 1 July 2015 the trust purchased 2 new

depreciating assets used 100% for business purposes and the motor vehicle. These are recorded in the payments information listed above. The trust wishes to maximise the tax deduction from the depreciation of the assets.

School of Business Semester 2, 2016 Page 3 of 5 Faculty of Law, Education, Business and Arts Higher Education, Internal & External

(e) The trust deed allows for the trustee to exercise absolute discretion when distributing ordinary income, statutory income and imputation credits. David Smith and his wife Jane have resolved to distribute all of the net income of the trust to each in equal shares.

REQUIRED: Calculate the net income of the trust based on taxation law only for the year ended 30 June 2016. Then show the breakup of the income that is distributed to each beneficiary, such as capital gain and imputation credits. You should explain your treatment of each item in this question. Figures can be rounded to the nearest dollar. Note the above figures exclude GST.

(15 marks)

QUESTION TWO The SCL Partnership is a partnership of three discretionary family trusts, the Smith Family Trust, the Lee Family Trust and the Chan Family Trust, and is the shareholder in Plastics Australia Pty Ltd. During the year the partnership received the following items of cash:

• Interest income from term deposits with the ANZ Bank 25,800 Dividends from

• Plastics Australia Pty Ltd 175,000 • Commonwealth Bank of Australia Ltd (CBA) 85,000 • Dell Computers Inc 47,600

Rental from commercial shops 125,080 It also spent cash on the following items:

• Legal expenses on the loan to acquire a new shop 5,800 • Lease preparation costs paid to a Solicitor 7,700 • Interest paid on the loan 125,000 • Salary paid to Mr Chan, a director of the Chan Family Trust 75,000

School of Business Semester 2, 2016 Page 4 of 5 Faculty of Law, Education, Business and Arts Higher Education, Internal & External

Further information

• The dividend from the CBA is franked to 100%. • The dividend from Plastics Australia Pty Ltd was only franked to 65% • The dividend from Dell Computers Ltd, a USA company, has had withholding tax of the

equivalent of AUD 8,400 deducted. • The partnership is registered for GST and has an ABN number. • The partnership agreement stated that Mr Chan was entitled to a salary of $75,000 for looking

after the partnership and doing the administration work. REQUIRED: Calculate the net partnership income of the SCL partnership.

(15 marks)

School of Business Semester 2, 2016 Page 5 of 5 Faculty of Law, Education, Business and Arts Higher Education, Internal & External